Mozo Money Moves: Federal Budget takes aim at cost of living as fixed rates rise and term deposits surge

Welcome back to another Money Moves, the weekly wrap of finance news. 

The Federal Budget landed this week and pleasantly surprised us with a second consecutive surplus. But how will the government’s cost-of-living relief package push the dial on inflation? 

Variable rates didn’t budge this week, but that didn’t mean lenders weren’t busy hiking fixed rates. 

Term deposit interest rates had another interesting week, with plenty of sub-1-year rates getting a top-up, and a few longer-term rates rising too. 

Let’s get into it… 

Federal Budget 2024-25  

This week, Treasurer Jim Chalmers delivered the first back-to-back budget surplus since 2007-08. However, the news of a $9.8 billion surplus came with a grim prediction of budget deficits down the line.

On the ABC’s 7:30, Chalmers told Sarah Ferguson, that he recognises his part in the fight against inflation, and that the Budget considers that.

“I am very confident, in this budget, that we’re putting downward pressure on inflation, that we are being part of the solution to inflation, rather than the problem.

“And that’s because of the spending restraint, the responsible economic management, and the way we’ve designed our cost of living help.” 

Central to the Budget this year is a $7.8 billion cost-of-living relief package, comprised of energy bill relief, a boost to Commonwealth Rent Assistance, student debt relief, a freeze on Pharmaceutical Benefits Scheme (PBS) prices, and Labor’s reworked Stage 3 tax cuts. 

While these Budget measures aim to soften inflation, Westpac economists say their net impact on inflation is hard to predict. 

“The direct effect is to soften inflation via the associated subsidies and lower indexation of some other prices the following year. It may also help contain inflation expectations. 

“But there’s an indirect effect; the relief provided to households may spill over into extra spending that could see inflation take longer to moderate,” according to Westpac. 

The government lowered its inflation predictions for the June 2024 CPI to 3.5%, from 3.75%, and adjusted its mid-year economic and fiscal outlook for 2025 to a new low of 2.75%.   

These figures sit below the Reserve Bank of Australia’s (RBA) forecasts, with headline inflation at 3.9% in June 2024, and 3.3% in June 2025. 

Mozo Federal Budget Insights 

• The Budget includes 6 new cost-of-living measures for Australian households, like tax cuts, energy bill relief, and a freeze on the cost of medicines.
• WATCH: How the government’s energy bill rebate works, with Rachel Wastell | Tiktok & Instagram.  

Home Loan Moves

This week in home loans, fixed rates continued to rise while variable rates held steady. 

The fixed-rate increases tracked in the Mozo database spanned most term lengths.

Among them, HSBC raised its Fixed Rate Home Loan across all term lengths by 0.20% to 0.30%, with 4- and 5-year terms typically rising by the latter. 

ME raised its fixed-rate Flexible Home Loan for owner-occupiers. The increases primarily apply to 2- to 5-year fixed terms and range between 0.05% to 0.25%. 

However, ME decreased some its Flexible Home Loan for investors with higher loan-to-value ratios (LVR) and all investor, interest-only variants, bringing rates down by 0.05% to 0.60%. 

Joining the list, Bank of Queensland raised its Discount Fixed Rate and its Fixed Rate offerings by 0.10% to 0.30% for 2- to 5-year term lengths. 

This brings the average, owner-occupier fixed rate (for principal and interest, $400k loans, at 80% LVR) in the Mozo database on 17 May 2024 to: 

• 1-year: 6.49% p.a.
• 2-years: 6.36% p.a. 
• 3-years: 6.28% p.a. 
• 4-years: 6.51% p.a. 
• 5-years: 6.54% p.a. 

Lowest Fixed Rate Home Loan by Term

Variable rates 

Variable interest rates remained unchanged this week, as projections around inflation, employment, and wage growth shift. 

Lenders may be waiting to see where the numbers drift before deciding where to place their rates. 

The average, owner-occupier variable rate in the Mozo database on 17 May 2024 is 6.80% p.a., while the average Big Four variable rate is 7.41% p.a. (for principal and interest loans, at $400k with 80% LVR).

Lowest Variable Home Loan Rates

Term Deposit Moves

This week in term deposit interest rates, the Mozo database recorded lots of hikes to sub-1-year rates (as has been the trend lately) and we watched Heartland Bank climb the leading rates on some terms after purchasing Challenger Bank.

Heartland Bank leads on several terms after acquiring Challenger Bank  (leading 6 months and 1 year rates)

Almost a fortnight after Heartland Bank bought Challenger Bank, it topped up its term deposit rates to beat out the 6-, and 1-year competition for those with a minimum deposit of $25,000.  

Heartland Bank raised rates on its 3-, 6, and 9-month term deposits by 0.05%, now at 4.80% p.a., 5.30% p.a., and 5.25% p.a., respectively. 

So, who else has moved this week? 

Goldfields Money added between 0.05% to 0.10% to its 3-, 4-, 5-, and 9-month rates. 

Community First Bank added 0.10% to its 3-, 4-, and 5-month rates, now 4.30% p.a.

BCU raised its 4-month Standard Term Deposit by 0.50%, now 4.80% p.a. 

P&N Bank also raised its 4-month rate to 4.80% p.a., a 1.05% increase. 

Summerland Bank raised its 4-month rate by 0.80%, now 4.70% p.a. 

Macquarie raised its 4- and 6-month rates by 0.05% to 0.10%, now 4.80% p.a. 

Gateway Bank increased its 3-month rate by 0.05%, now 4.95% p.a., and gave its 9-month rate a 2.10% boost, now 5.05% p.a. 

Judo Bank increased its 3-, 6-, and 9-month, and 1-, 2-, and 5-year rates by 0.10% to 0.15%.

Macquarie Credit Union raised its 3-month term deposit by 0.20%, now 3.60% p.a., its 6-month rate by 0.85%, now 4.85% p.a., and its 1-year rate by 0.05%, now 4.75% p.a.

Bucking the trend, MyState Bank cut its 7-month rate down from 5.00% p.a. to 3.50% p.a., while raising its 1-year rate by 0.20%, now 5.00% p.a. 

Central West Credit Union raised its 1- and 2-year term deposit rates to 4.65% p.a. and 4.55% p.a., respectively. 

Alex.Bank raised its 1-year rate by 0.10%, now 5.25% p.a., and raised its 2-year rate by 0.05%, now 5.20% p.a. The invite-only bank also increased its 6-month rate to 5.25% p.a., an increase of 0.20%. 

We also saw a series of rate cuts from Bank of Sydney, cutting 7-, 8-, 10-, and 11-month rates by 0.30% to 0.45%. However, it raised its 1-year rate by 0.20%, now 5.25% p.a. 

The average term deposit rates in the Mozo database, as at 17 May 2024, for personal term deposit products at $25,000, are: 

• 3-months: 3.84% p.a.
• 6-months: 4.32% p.a.
• 9-months: 4.30% p.a.
• 1-year: 4.62% p.a.
• 2-years: 4.07% p.a. 
• 3-years: 3.90% p.a. 
• 4-years: 3.78% p.a.
• 5-years: 3.81% p.a.

Leading Term Deposit Rates – 1 Year

Term Deposit Insights: 

• Are short term deposits worth a look over longer terms?

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As a part of Mozo’s commitment to making your money count for more, each month we “roundup” the rate changes, key banking trends and money moves in the Australian personal finance market. 

If you’d like to see the analysis in full once it’s released, you can subscribe to receive the Mozo Banking RoundUp here.

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